Amid a struggling broader economy, the building and construction industry in South Australia is set for a patchy recovery at best as home building activity bottoms out and a decent rise in engineering construction is offset by declines in commercial building activity.
Current market conditions in the state are very weak, with the overall dollar value of construction work done actually dropping back 2.37 per cent in 2013/14 notwithstanding a modest uptick in home building activity. This phenomenon is not difficult to understand given that current levels of economic and population growth lag national averages by a fair bit and overall employment levels within the state have actually fallen by 7,000 over the past two years.
Furthermore, there appear to be limited long-term prospects for economic growth. In a forecast earlier this year, for example, Deloitte said it expected the state to average growth of just two per cent over the next decade as opposed to three per cent over the past two decades. Outside of a modest recovery in home building off a low base and a good deal of activity associated with major road projects over the next year or two, areas of expansion are limited, though some of the recently announced proposals for planning reform will hopefully come to fruition and make the process of actually getting down to new construction a little easier.
Accordingly, Australian Construction Industry Forum (ACIF) expects the overall dollar value of work done on all construction projects throughout the state to rise by a modest but respectable 3.87 per cent in 2014/15 and 5.03 per cent in 2014/15 before dropping back by 1.7 per cent over the following two years.
Below is an outline of current market conditions and the outlook for the state in terms of residential construction, non-residential building, engineering construction and construction sector employment.
Following discouraging lows of 8,830 experienced during 2012/13 in the aftermath of federal government incentives which bought forward the purchase of new homes in 2009/10, the number of housing starts which took place throughout the state rose by more than 20 per cent in 2013/14. That brought the number to a still modest level of 10,700 as low interest rates spurred demand despite the low level of population growth and the economic uncertainty associated with weakness in the state’s manufacturing sector and labour market.
Going forward, building approval data is encouraging, with the 9,466 new houses and apartments having been approved for construction in the first 10 months of this year being almost 15 per cent higher compared with the same period last year and implying an annual build rate (assuming all homes approved go ahead into construction) of extremely healthy levels of 11,359.
Nevertheless, the Housing Industry Association (HIA) expects starts to ease back by 7.7 per cent in the current financial year before beginning to recover again thereafter and reaching historically healthy levels of 11,190 by 2017/18 as a gradual cooling in the multi-residential sector is more than offset by a strong comeback in detached housing construction.
In terms of housing renovations, meanwhile, the HIA expects the dollar value of investment to rise gradually from a modest $1.922 billion in 2013/14 to $1.982 billion in 2014/15 and to reach almost $2.2 billion by 2016/17.
Following a period of reasonably strong activity bought about by the Building Education Revolution, the redevelopment of the Adelaide Oval and the Royal Adelaide Hospital, ACIF expects the dollar value of work done on non-residential building construction throughout South Australia to ease back from $2.304 billion to $2.273 billion and to drop back below $2 billion by 2017/18 amid a dearth of major new projects to pick up the slack as work on the new hospital draws toward completion.
Modest growth is expected in the retail sector, while industrial should also make a modest comeback.
Driven by anticipated starts on a number of project packages associated with the upgrade of South Road and later the Northern Connector Road, ACIF expects the dollar value of work done on civil construction throughout the state to grow by 3.1 per cent in 2014/15 and 8.2 per cent to come in at $5.807 billion in 2015/16 and remain at around that level thereafter.
Along with roads, telecommunications will be another strong area thanks to work on the National Broadband Network.
At the moment, current conditions within the market for construction workers in South Australia are soft, with the number of people employed throughout the sector in the three months to August (63,600) being 1,300 less than for the previous corresponding period one year earlier.
Going forward, conditions are likely to remain relatively stable amid the aforementioned expected modest gains in activity. Accordingly, participants in the latest Property Council of Australia Property Industry Confidence Survey are fully optimistic about their staffing levels nationally within the state over the next 12 months but only modestly optimistic about their staffing levels in South Australia. ACIF, meanwhile, expects employment numbers within the industry to gradually decline to around 61,000 in 2016/17.
Project Tender Prices
Following a period of extreme weakness, tender prices for construction projects in South Australia are expected to rise by 1.3 per cent in 2014 followed by increases of 2.5 and three per cent in 2015 and 2016 respectively, according to quantity surveying firm WT Partnership.
In new report, WT said that while the quantity and value of projects underway in the state was a far cry from pre-2008 levels, tier one and tier two contractors were reporting a "hunger for more projects" but "not a desperation that was considered the norm in the past few years." The report added that discussions with various suppliers indicated "a push for what might be considered a catch up in pricing having survived unsustainably keen pricing in recent past years."